Delaware’s Corporate Franchise and SB-21

August 7, 2025

Video

Please click above to view footage of Richards Layton director Catherine Dearlove’s presentation on the importance of Delaware’s corporate franchise to the Wilmington Rotary Club on August 7, 2025.

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Full Transcript:

Thank you, John, for that kind introduction and thank you to the Rotary for inviting me to speak with you today about Delaware’s corporate franchise and recent challenges to Delaware’s dominance in this area.

As many of you know, Delaware emerged as the pre-eminent jurisdiction in corporate law more than 100 years ago. Before 1899, in DE, as in most states, corporations were formed ad hoc, by the legislature, in a process that was both cumbersome and prone to corruption. In 1899, Delaware adopted its first General Corporation Law – a common set of rules, allowing any person to form a corporation without an act of legislature, pursuant to a standardized process. This change, as well as our forefathers’ wise decision to adopt a General Corporation Law that was flexible, and responsive to the needs of business, allowed Delaware to unseat New Jersey as the then-leading venue for incorporation in the US. Since then – Delaware’s public officials and bar and business leaders have ensured that the DGCL evolved to continue to serve the needs of businesses with clarity, predictability and apolitical balance in an ever-evolving global economy – and Delaware’s dominance grew.

Delaware’s emergence as the leading corporate domicile was not merely an accident of history. It was the result of careful tending by generations of leaders – public and private.

That legacy has paid substantial dividends to benefit all Delawareans. Delaware is now the corporate home of over 50% of all publicly traded companies, 66% of the Fortune 500, and countless other corporations, LLC’s, LP’s and many other state laws – as well as many countries around the world – mirror their laws on Delaware’s. Importantly, the corporate franchise generates nearly $2.2 billion – approximately 2/5 of the state budget – in tax-related revenues at very little cost without straining our limited resources. These revenues allow Delaware to proudly be the “home of tax-free shopping,” and support a wide range of public programs that benefit all Delawareans, including our local schools, infrastructure and community organizations as well as bringing high-paying jobs to the state and keeping them here.

Those of you in this room are likely at least somewhat aware of this history and the importance of the Corporate Franchise to the overall financial stability of our state. But I am speaking to you today because recent events have shown that it is vital that we do not take Delaware’s leadership position for granted.

As you all have probably heard, in recent years, there has been a growing chorus of people who question whether Delaware can – or should – retain its corporate law dominance. There have been calls to federalize corporate law, and efforts from other states to attract corporations to change their corporate home to those jurisdictions. These threats are real, and while I do believe that Delaware can and will retain its preeminence, we can do so only when Delawareans come together to broadly support and protect the franchise.

Delaware’s small size and long-standing traditions of collegiality and non-partisanship have been, to some extent, the key to Delaware’s success. Delaware’s dominance is built upon an exceedingly long-lasting and stable foundation consisting of 5 strong pillars that larger, more divided, states cannot readily copy. Those 5 pillars are:

• Delaware’s Constitutional Protection of the autonomy of corporations and corporate directors.
  • Article 9 precludes the legislature from altering any corporate charter by special act, and requires a 2/3 majority to amend the DGCL. This means that corporations are not subject to the changing political whims of the legislature. Although Delaware is a “blue state” it cannot dictate that corporations make business decisions that advance a liberal agenda or preclude businesses from supporting conservative policies.
  • No other state offers similar protections to its corporate citizens, on the contrary – other states seek to impose political policies on corporations formed under their laws.
• Balanced, Enabling General Corporate Law that is regularly updated by corporate law experts to meet the changing needs of corporation in a global economy.
  • The DGCL is crafted to be flexible and allow corporations to adopt governance rules that suit the individual needs of each corporation.
  • And it is regularly updated to take into account corporate innovations.
• An efficient, expert Court system with over 100+ years of case law.
  • Expert, apolitical Court of Chancery – the first and leading specialized business Court with expert business savvy jurists appointed after a rigorous vetting process,– and has long been recognized for its unique ability to resolve disputes equitably and efficiently.
  • 100 plus years of precedent that corporations and advisors can rely on when making decisions.
  • A direct right of appeal to the Delaware Supreme Court – which is similarly comprised of excellent, business-savvy jurists and resolves appellate issues equitably and efficiently
• Informed and effective Legislature that recognizes the importance of the corporate franchise to Delaware’s fiscal well-being.
  • The Legislature is motivated and responsive to the needs of corporate boards, and that strives to carefully balance the interests management and their investors/shareholders.
  • The Legislature meets annually. Many others states’ legislatures (Texas and Nevada) only meet bi-annually.
• Well-established and expert infrastructure to serve corporation’s needs. This includes
  • the government agencies responsible for administering the corporate franchise – the Secretary of State, Division of Corporations – who are amazingly responsive and customer-service oriented.
    • Filings can be processed in hours, not days.
  • Delaware’s sophisticated and collegial bar, with unmatched experience in corporate law and a history of working together to address corporate concerns.
  • the many corporate service providers, like registered agents, CT and CSC that support our corporate citizens and provide excellent employment opportunities for Delawareans.

Over history, it is because these five pillars worked together that Delaware has been able to maintain its prominence, despite periodic challenges from other jurisdictions.

For example, Delaware GCL has remained state-of-the-art through the years because Delaware’s bar, the executive branch and legislature work together every year to review and update the GCL and ensure that it continues to meet the changing needs of Delaware’s corporate citizens. And the ability to efficiently update the DGCL each year is enhanced, because Delaware’s constitutional requirement of two-thirds (2/3) majority for changes to DGCL and the legislature’s understanding of corporate franchise and trust in the unbiased process of review by the Corporate Counsel ensures that the proposed amendments receive bi-partisan support. That bi-partisan support, in turn, enhances Delaware’s corporate standing, because it reinforces the confidence corporate managers and investors have in the stability of Delaware’s law.

And while in recent decades Delaware’s Court system has often been viewed as a centerpiece of the “Delaware Advantage” in corporate law (as well it should be), the strength of all the pillars is important to ensure that Delaware maintains its dominance, as the events of the past year demonstrate.

With that framework in mind, I will try to explain the emergence of the recent controversy over Delaware’s corporate franchise, and why I believe that Delaware will remain the top corporate domicile in the US, despite the current challenges.

First … how we got here. During the recent debates over SB 21, its critics sought to characterize the bill as an attempt to appease certain disgruntled litigants, in the wake of adverse decisions from the Court of Chancery and very vocal threats to leave Delaware. The very public criticism of the litigation environment in Delaware and calls to leave were certainly part of the story, but the underlying current of concern that erupted in 2024 and 2024 was broader and had been percolating for a decade or more.

The concerns were voiced not only by a few discontented litigants, but by many leading corporate practitioners, including those who had long been Delaware’s biggest fans. We in the corporate bar had been hearing for years that directors and managers of Delaware corporations were concerned that decisions of the Court of Chancery were increasingly unpredictable and more critical of corporate directors. A new class of professional plaintiffs’ law firms had emerged, and Shareholder litigation was increasingly common, increasingly burdensome, inefficient and expensive to resolve.

These concerns were raised in connection with a broad spectrum of issues, including the expanded, unpredictable scope of Section 220 books and records demands and the proliferation of claims seeking to invalidate corporate acts on increasingly technical grounds. The increased frequency and ever-growing costs of litigation across the spectrum of corporate disputes was a concern for Delaware corporations and those who advise them. And the increasing litigiousness was an issue for the courts as well. Ever increasing caseloads prompted the Courts to request additional judges and other resources, year after year.

These concerns ultimately threatened to undermine the confidence that Delaware’s corporation citizens had in the stability, flexibility and efficiency of the DGCL, and in the previously unchallenged superiority of the Court of Chancery as a forum for resolving corporate disputes.

Delaware’s response to these concerns – in 2025, as in the decade before – relied on the combined support of the five pillars I discussed earlier. In the past, these concerns were raised largely in the background and were kept in check thorough changes implemented by the Courts and the legislature, largely without public fanfare.

As we all know, that changed in 2025, when some vocal and high-profile individuals’ calls to leave DE, amplified by public media interest and later by well-funded out of state special interest groups opposing SB 21, brought corporate America’s latent concerns about the increasingly burdensome litigation environment in DE to the pages of the News Journal and the New York Times and to business leaders’ feeds on X. Whether one agrees with the position of individual critics or not, the risk that Delaware could lose a substantial number of large public companies – and the tax revenue they generate – became a substantial and immediate threat to Delaware’s dominance and its fiscal health. An urgent response was called for.

Delaware responded accordingly after becoming aware of the looming threat, Governor Meyer and his Secretary of State, Char Patibandi-Sanchez, engaged in a series of meetings with Delaware’s corporate leaders, expert members of the bar, and other constituents to seek to understand the concerns expressed by corporate citizens. Ultimately, these meetings with corporate and legal leaders led Governor Meyer to propose a bipartisan resolution by members of the general assembly in the form of SB 21 – a bill that addressed some (but not all) of the most pressing concerns expressed by Delaware’s corporate citizens, but also maintained the careful balance between corporate shareholder interests that has characterized Delaware corporate law for over a century.

Specifically, SB 21

• Addressed the expansion of the most burdensome type of litigation – in the controlling stockholder context, perceived inefficiency/imbalance in litigation, by codifying a more reliable and practical “safe harbor” rules for approval of controller transactions.
• Addressed overly burdensome use of Section 220 books and records demands, by codifying common sense limits on the scope of records available in most cases.

SB21 was a critical part of the efforts to restore confidence in Delaware. But it was only a part of the story.

The effort to pass SB21 revealed that we in the bar – and in the business community – had taken the legislature’s historical bi-partisan support too much for granted, and had overlooked generational and political shifts that brought new legislators to Dover and a new generation of voters to the polls. Many new legislators and many voters did not yet have a full understanding of the unique, balanced features of and the importance of the franchise to Delaware as a revenue-driver for the state. And, in our increasingly divided society, special interest groups were able to spread a simple but biased narrative that took hold and was difficult to rebut.

Governor Meyer and his Secretary of State Char Patibandi-Sanchez, a bipartisan group of experienced legislators, and legal and business leaders, all pulled together to rebuild legislators’ and voters’ understanding of the importance of the corporate franchise to all Delawareans, across political and generational divides. Contemporaneously, those same government and private leaders were actively engaged in a public relations campaign to remind corporate America outside of Delaware – law firms, corporate leaders, investors and others –why Delaware remains the right choice. Those efforts continue to this day.

Again, we saw the five pillars working together to enhance confidence in Delaware’s balance, stability and responsiveness, to preserve Delaware’s dominance, for the benefit of all Delawareans.

Importantly, while SB21 was criticized by certain special interest as a “billionaire’s bill,” it stands in contrast to the more extreme actions of our competitors in the corporate franchise marketplace. Seizing on the controversy in Delaware, two primary competitors – Nevada and Texas – very quickly proposed a hodgepodge of aggressively, pro-management and anti-stockholder, amendments to their corporate statutes. Their “race to the bottom” approach stands in sharp contrast to Delaware’s careful, middle-of-the-road path, fortified by over 100+ years of case law and the benefits of apolitical, small state efficiency.

And while there have been – and may continue to be – some companies, on the margins that choose to leave Delaware in favor of these jurisdictions, the passage of SB 21 – and in particular, its passage by a margin even greater than the minimum two-thirds requirement – did serve to restore confidence in Delaware for most mainstream public companies, and we have seen many companies that were considering redomiciliation withdrew or put on hold their efforts.

That is the good news. But the threat is not over.

• As recently as last month, we saw the public announcement by a leading VC firm, Andressen Hororwitz, of its decision to leave Delaware in favor of Nevada, coupled with its call to founders in start-up companies to do the same.
• There are multiple challenges to the constitutionality of SB21 now pending before the Supreme Court.
• Many of the democratic legislators in the General Assembly who supported SB 21 are likely to/will be facing primary challenges, funded by the out of state, special interest groups who opposed SB 21.
• Many companies continue to consider the possibility of re-incorporation, and many companies have suggested that their plans are on hold, awaiting a decision in the cases challenging SB21.
• Governor Meyer, Secretary of State Char Patibandi-Sanchez, members of the Court and leaders of the bar continue to devote substantial time and resources to promote Delaware franchise both in the US and abroad.

So I will end with a few quick comments on the lessons we learned over the past year, and a call for your support:

• Delaware’s corporate franchise is stable – but it is increasingly fragile. In our fractured political environment and in the echo-chambers of social media, it is very easy for a small number of critics to spread their concerns widely, whether or not their criticisms are well-founded. Perception is reality.
• Delaware’s legislative process is particularly vulnerable to special interests -small size of legislature and absence of “big money” contributors make it very easy for well-funded special interest to sow disinformation and sway an election. And the margins in the legislature, with a 2/3 vote requirement, are razor thin, so the election of even a few legislators beholden to special interest donors would put the continued vitality of the DGCL at risk.
• Our competition is poised to act quickly to exploit any perceived weakness, and inertia will not keep companies in DE if the alternatives better suit their needs. We need to monitor developments in other states and be poised to respond nimbly, but thoughtfully.
• Delaware’s legislators and citizens may not understand/appreciate the role of the corporate franchise in Delaware’s economy to the same extent they used to. We as business leaders/members of the bar must do our part to educate our public officials as well as our friends and neighbors of the importance of the franchise.

Thank you.

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  Catherine G. Dearlove